Insurance, Banking Groups Balk at Limits on Flood Insurance Operations During Shutdown

By | December 27, 2018

As indicated by a report by Insurance Journal over the holidays, the Federal Emergency Management Agency (FEMA) is limiting the authority of the nation’s flood insurance program to issue new and renewal policies during the federal government shutdown. The insurance and banking industries oppose the move and are urging FEMA to reconsider.

FEMA could later decide to resume regular policy issuance operations if the partial shutdown goes on for some time.

On Wednesday, Dec. 26, FEMA announced changes to the operations of the National Flood Insurance Program (NFIP) in response to the U.S. government partial shutdown. FEMA said NFIP insurance policies that were in force before midnight on Dec. 21, 2018 remain in force and claims under those policies will be paid. However, FEMA also said the NFIP will now have “limited ability” to issue new policies, issue increased coverage on existing policies, or issue renewal policies. FEMA did not define “limited ability” or indicate how long this change would be in effect.

FEMA announced the limited operations despite Congress passing and President Trump signing legislation last Friday right that supporters contend was meant to keep the program running even during a shutdown. The flood program was set to expire at midnight on Dec. 21. The new law reauthorized the NFIP until May 31, 2019.

FEMA’S overall response appears similar to those it has taken with the flood insurance program during previous government shutdowns or lapses of NFIP authorization. According to sources, FEMA is citing the Anti-Deficiencies Act that limits agencies from entering into contractual obligations or making expenditures that are not fully funded. FEMA could later restart issuing new policies and renewals if the shutdown is prolonged and the NFIP’s not issuing policies turns out to be harming the property market.

Banking, insurance and real estate interests worry that any disruption in sales of flood insurance could hold up real estate closings.

Insurance industry supporters of the NFIP reauthorization law enacted last week believe FEMA’s action violates the intent of lawmakers and they have asked FEMA to reconsider the slowdown in policy issuance operations. The Independent Insurance Agents & Brokers of America, the American Insurance Association, the Council of Insurance Agents & Brokers, the National Association of Mutual Insurance Companies, and the Property Casualty Insurers Association of America issued a joint public statement on their disagreement with FEMA’s stance.

“The decision to stop issuing and renewing NFIP polices for the time being is a rebuke of the clear intent of Congress and the President. The inability of FEMA to act as directed by our elected officials is disappointing,” the joint statement said in part.

“The leadership shown by Congress to ensure that Americans in flood prone areas have continued access to flood insurance, as NFIP reforms are debated, is commendable. We stand ready to work with Congress and the Administration to find solutions to close the flood insurance gap and grow the number of property owners covered by flood insurance through the NFIP and the private market. In the meantime, we urge FEMA to rethink its decision,” the statement continued.

The American Bankers Association also criticized the slowdown in NFIP operations, claiming the reauthorization legislation passed last week “was specifically intended to keep the program operating” during the government shutdown.

“FEMA’s unexpected decision will complicate and delay loan closings for borrowers who are required to carry flood insurance and seek NFIP coverage for as long as the government shutdown continues,” the ABA said in a statement.

The banking group also criticized FEMA for not informing Congress and the public of its move earlier. “We hope that FEMA will reconsider this unfortunate action immediately,” the group added.

The disagreement with the FEMA move appears widespread.

“We’ve heard that WYOs [Write Your Own carriers], agents, realtors and mortgage lenders all feel that NFIP authority shouldn’t be impacted by the partial government shutdown,” said Cynthia DiVincenti, vice president of government programs at National Flood Services (NFS), a vendor that works with stakeholders and services more than 1.8 million flood policies and more than 33,000 flood claims annually.

The office of Sen. John Kennedy, (R, La.), a sponsor of the NFIP extension bill, told Insurance Journal that the extension approved by Congress and Trump should have avoided disruptions to the flood insurance program through the shutdown.

Rep. Maxine Waters (D-Calif.), ranking member of the House Committee on Financial Services, also urged FEMA to reconsider what she called its “harmful and incorrect interpretation of its authority” and resume its “important work of providing flood insurance.”

FEMA has stopped updating its website due to the shutdown.

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